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2007 (7) TMI 429 - AT - Income TaxComputation of capital Gain - Determination of Cost of acquisition of capital assets - Interest paid on borrowed funds, which were utilised for purchase of capital asset, can be considered as cost of capital asset ? - HELD THAT:- The computation of capital gain is provided in section 48 of the Act. According to this section, the only deductions which are allowable are - (1) the cost of acquisition of the asset, (2) the cost of any improvement thereto and (3) expenditure incurred wholly and exclusively in connection with the transfer of the asset. The cost of acquisition, in our opinion, means the amount paid for acquiring the asset. Once the asset is acquired, then any expenditure incurred thereafter cannot be considered as the cost of acquisition, since such expenditure would not have any nexus with the acquisition of the asset. Wherever the Legislature intended to allow such expenditure as deduction, it had specifically provided so under various heads. In determining the cost of acquisition, the interest component after bringing the asset into existence is not taken into consideration as per Explanation 8 to section 43 of the Act. If the interest is to be added to the cost of acquisition, then the assessee would be entitled to double deduction - once u/s 36(1)(iii) and the other u/s 32 of the Act, which is not permissible in view of the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. v. UOI [1992 (10) TMI 1 - SUPREME COURT]. Similarly, when the shares are purchased by way of investment, and the dividend is received in respect of such shares, the interest paid on borrowed funds has been held to be allowable as deduction against the dividend income. The view taken by us is fortified by the decision of the coordinate Bench of the Tribunal in the case of Macintosh Finance Estates Ltd.[2006 (2) TMI 578 - ITAT MUMBAI], wherein it has been held "once we find that interest expenses is an allowable expenditure under the head "Income from other sources", it cannot be allowed to be added to the cost of investment only because in this year no deduction is allowable because the dividend income has been made exempt". On the basis of the Supreme Court judgment in the case of Challapalli Sugars Ltd. v. CIT [1974 (10) TMI 3 - SUPREME COURT], it cannot be said that expenditure incurred after the asset is brought into existence, i.e., after the acquisition of the asset would form part of the actual cost. Accordingly, we are not persuaded by the decision of the Hon’ble Madras High Court in the case of K. Raja Gopala Rao [2000 (11) TMI 31 - MADRAS HIGH COURT]. The jurisdictional High Court in the case of CIT v. Thane Electricity Supply Ltd.[1993 (4) TMI 37 - BOMBAY HIGH COURT], has held that judgment of non-jurisdictional High Court is not binding on the subordinate Courts or the tax authorities but has only a persuasive value. Thus, it is held that the interest paid by the assessee for the period commencing from the date of acquisition of shares till the date of sale would not form part of the cost of acquisition. However, our decision would not affect the part relief allowed by the Assessing Officer himself since that matter is not before us. In the result, appeal of the revenue is allowed.
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